"In a world that has begun to believe that financial profit is the only religion, sometimes not wanting money is more frightening to capitalist society than acts of terrorism."
Arundhati Ray

02 November 2007

The World is surely at an End

Loonie high on fed cut

The Canadian dollar stormed through its August, 1957 peak of US$1.0614 yesterday to post a record high for the modern age as a cut in US interest rates prompted the slump in the greenback to dramatically accelerate. While the loonie got a lift from a scorching rally in Toronto stocks and a record high in oil prices, the slump in the greenback gave the Canadian currency additional jet fuel. It soared 93¢ to close at $1.0585 before hitting US$1.0617 after 4pm. That was the highest since the Bank of Canada began keeping records in 1950, while historical graphs show it has not been this lofty since the late 1870s. The US dollar also slumped to a record low against the euro of $1.4504, and to 76.465 on the dollar index, a basket of major currencies, amid signs it is now in free fall. "They're [the Fed] putting chum in the water for the sharks to eat the US dollar alive," said Andrew Busch, global foreign-exchange strategist at BMO Capital Markets. Of particular concern to traders was that the greenback failed to gain purchase despite a more hawkish statement than expected on interest rates from the Federal Reserve and data showing the economy expanded at a 3.9% pace in the third quarter. Although the Fed did cut rates 25 basis points to 4.5% yesterday, it gave investors no indication a still-creaking housing market would induce it to ease further and in fact played up the inflationary risks. "There's profoundly bearish sentiment out there that is going to take quite a bit to turn around," said Shaun Osborne, chief currency strategist at TD Securities. "I think there is risk here we continue to see the dollar running lower and maybe [see] even an acceleration in the trend here unless we see a firm statement of support from the US."

In its statement, the Fed said readings on core inflation have improved modestly this year, but recent increases in energy and commodity prices, among other factors, may put renewed upward pressure on inflation. "In this context, the committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully," the Fed said. It added the upside risks to inflation were now roughly balanced with the downside risk to growth. The statement effectively puts the Fed back in neutral after slashing rates 50 basis points in September to fend off contagion from the summer credit market meltdown. "Essentially, the impact of their statement was to say that ... they do not believe the deterioration in housing and poor credit market conditions will lead to a recession," said Hugh Johnson, chairman of Johnson Illington Advisors. "They also seem to imply they're not going to allow the financial markets to bully them ... they will make their future interest rate decisions on the basis of incoming economic and inflation numbers." (National Post 071101)

Can anyone believe this? The dollar was over $1.07US at one point today. What the hell is going on? Aighhh!